* Euro/dollar hits 11-wk high but pares gains at the close
* Dollar gets support after drop in US consumer confidence
(Updates prices, adds detail)
By Nick Olivari
NEW YORK, July 27 (Reuters) - The euro pared gains and traded little changed against the dollar on Tuesday, backing off an 11-week high as a drop in U.S. consumer confidence made investors more risk-averse.
The euro traded at its highest level since May against the dollar early in the session. But the single currency erased its advance after job worries drove July U.S. consumer confidence to its lowest level since February. Weaker U.S. data tends to turn investors off riskier assets such as stocks and the euro. For details, see [ID:nN27219358]
"We have a little bit of a rally in the dollar after this number because even though consumer confidence fell to a five-month low, the euro is still struggling to sustain a drive above 1.30, having tested that level on four separate occasions this month," said Kathy Lien, director of currency research at GFT Forex in New York.
In late afternoon trading in New York, the euro was little changed at $1.2996 EUR= after touching $1.3045 earlier, according to Reuters data.
Against the yen, the dollar rose more than 1 percent to touch a session high at 87.96 yen JPY=. It last traded at 87.93 yen.
Still, analysts said sentiment on the European currency has improved and Tuesday's data may not be weak enough to prevent further gains in the euro and other higher-yielding currencies.
"The euro has given back some of its gains early in the U.S. trading session but with optimism prevailing overall, our bias remains for global currencies to edge higher this week," said Nick Bennenbroek, head of currency strategy at Wells Fargo Bank in New York.
Declines in the euro were seen limited while it remained above support at $1.2870 -- close to its 100-day moving average -- and last week's low around $1.2730.
The recent run of better euro zone data continued on Tuesday, with above-forecast euro zone money supply and German consumer confidence figures. [ID:nLDE66Q0O4] [ID:nLDE66P1NX]
The fundamental outlook "seems to be deteriorating in the U.S., while the state of affairs in the euro zone seems to be looking up relative to very depressed expectations that had persisted for much of 2010," said Sacha Tihanyi, a currency strategist at Scotia Capital in Toronto.
The next target for the euro, which has risen close to 10 percent since it fell below $1.20 last month, will be $1.3125, the 38.2 percent retracement of its November-June fall, technical analysts said.
"We are seeing more and more banks alter their forecasts higher in euro/dollar either from research or from technical teams," said Brad Bechtel, a managing director for trading at Faros Trading LLC in Stamford, Connecticut. "The 38.2 percent Fibonacci line comes in around 1.3125 on the charts and is going to be the first line of resistance," he said.
Still, other analysts, like Shaun Osborne at TD Securities, said it may be too soon to assume the worst is over for the single currency.
"Everyone seems to love the euro now. They've gone from thinking the euro zone was going to fall apart to assuming things are safe and sound," he said. "At best, (the gains) appear to be short-covering rather than people going outright long the euro."
The aussie rose to an 11-week high against the dollar AUD= before surrendering those gains to trade down 0.1 percent though it remained above the 90 U.S. cent level for a second day at US$0.9020. It closed above the 200-day simple moving average on Monday. (Additional reporting by Steven C. Johnson in New York) (Reporting by Nick Olivari and Vivianne Rodrigues; Editing by Andrew Hay)